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Difficulty: MediumMoney Market: Institutions and Instruments

Bankers' Acceptances are money market instruments issued directly by the Central Bank to regulate money supply.

Answer: Answer

Answer

The statement is False. Bankers' Acceptances are commercial trade-financing instruments guaranteed by commercial banks, not instruments issued by the Central Bank.
The claim is false because Bankers' Acceptances are short-term negotiable credit instruments created by non-financial firms and accepted (guaranteed) by commercial banks to finance transactions in international and domestic trade.

Step-by-Step Solution

1
Identify the issuing authority and purpose of Bankers' Acceptances.
Bankers' Acceptances originate from trade transactions where a commercial bank accepts liability to pay a specified sum at a future date.
Understanding the issuer distinguishes private commercial money market instruments from central bank instruments.
2
Compare with Central Bank liquidity management instruments.
The Central Bank uses Treasury Bills, Central Bank Bills, and Open Market Operations (OMO) to manage money supply, not Bankers' Acceptances.
Distinguishing between monetary policy tools and trade finance instruments clarifies the role of financial intermediaries.

Key Concept

Bankers' Acceptances in the Money Market
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Topics

Money Market: Institutions and Instruments

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